Delta Galil Reports Second Quarter 2018 Results

Net Income was $6.5 Million, or $0.25 per share, Including Acquisition Costs

Net Income Before One-Time Items Increased 2% to $9.1 Million; Diluted EPS Before One-Time Items Increased 3% to $0.36

Reaffirms 2018 Guidance; Sales Expected to Reach $1,400 Million-$1,440 Million and Full-Year Diluted EPS Expected to Reach $2.11-$2.30

Eminence Acquisition was Completed Earlier than Expected On July 6^th 2018

2018 Second Quarter Highlights

• Net income before one-time items totaled $9.1 million, compared to $8.9 million last year, representing a 3% increase.
• Net income was $6.5 million, including acquisition-related costs, compared to $8.9 million last year.
• Diluted earnings per share before one-time items increased 3% to $0.36, compared to $0.35 last year.
• Diluted earnings per share, including acquisition-related costs were $0.25 for the second quarter of 2018, compared to $0.35 in the same quarter last year.
• Sales for the first six months of 2018 increased 3% to $673.4 million, compared to $656.1 million for the comparable period last year.
• A strong balance sheet was highlighted by $450 million in equity and $105 million in cash as of June 30, 2018.
• Financial guidance for 2018 was reaffirmed: Full-year 2018 sales are expected to range between $1,400 million-$1,440 million, representing an increase of 2%-5% from 2017 actual sales of $1,368.1 million. Full-year 2018 diluted EPS excluding one-time items is expected to range between $2.11-$2.30, representing an increase of 7%-16% from 2017 actual EPS, excluding one-time items, of $1.98.
• Declared a dividend of $3.5 million, or $0.139 per share, to be distributed on September 4, 2018. The determining and "ex-dividend" date will be August 23, 2018.
• The acquisition of the Eminence Group, which sells premier branded underwear and leisurewear for men and women in France and Italy, was completed earlier than expected.

• Isaac Dabah, CEO of Delta Galil, stated: “We are very pleased with the early completion of the Eminence Group acquisition, and believe it provides a potential platform for growth, while expanding our presence and branded business in the important France and Italy markets. We remain committed to investing in new products and resources to drive sustained profitable growth and long-term shareholder value. And with a strong balance sheet and cash position, we have the necessary financial resources to continue to invest, innovate and grow – both organically and through acquisitions.”

TEL AVIV, Israel--(BUSINESS WIRE)--Delta Galil Industries, Ltd. (DELT/Tel Aviv Stock Exchange, DELTY.PK/OTCQX), the global manufacturer and marketer of branded and private label apparel products for men, women and children, as well as leisurewear, activewear and denim, today reported net income of $6.5 million for the second quarter ended June 30, 2018, including a one-time non-recurring charge of $3.95 million related to acquisition costs, compared to net income of $8.9 million for the 2017 second quarter. Excluding the acquisition-related cost, net income for the 2018 second quarter was $9.1 million.

Sales

The Company reported sales of $338.9 million for the second quarter of 2018, relatively flat from $340.5 million in the second quarter of 2017. Sales for the first six months of 2018 were $673.4 million, up 3% from $656.1 million in the same six-month period of 2017.

Operating Profit

Operating profit before one-time items was $15.2 million for the second quarter of 2018, compared to $17.7 million in the second quarter of 2017, representing a 14% decrease. Operating profit was $11.3 million for the second quarter of 2018, including $4 million acquisition-related costs, compared to $17.7 million for the same period last year, representing a 36% decrease.

Operating profit in the first six months of 2018 before one-time items was $29.2 million, down 4% from $30.6 million in the same period of 2017. For the first six months of 2018, operating profit was $25.3 million, including $4 million acquisition-related costs, down 9% from $27.9 million in the same period last year. The decrease in operating profit was mainly a result of costs associated with a new distribution center, as well as running costs and lower profitability in the company's factories due to a change in the product's mix.

Net Income

Net income excluding the acquisition-related costs increased 2% to $9.1 million, from $8.9 million in the second quarter of 2017. Net income was $6.5 million for the second quarter of 2018, including the acquisition-related costs, down 27% from $8.9 million last year.

Net income before one-time items increased 3% for the first six months of 2018, and totaled $16.6 million, compared to $16.2 million for the same period of 2017. For the first six months of 2018, net income was $14.2 million, including the acquisition-related costs, down 2% from $14.4 million for the first six months of last year.

Diluted Earnings Per Share

Diluted earnings per share before one-time items increased 3% in the 2018 second quarter, and amounted to $0.36, compared to $0.35 in the same quarter last year. Diluted earnings per share including acquisition-related costs were $0.25 for the second quarter of 2018, compared to $0.35 in the same quarter last year, representing a 27% decrease.

Diluted earnings per share before one-time items increased 4% for the 2018 six-month period and totaled $0.65, compared to $0.63 for the prior year period. For the first six months of 2018, diluted earnings per share were $0.55, down 2% from $0.57 last year.

Management Comment

Isaac Dabah, CEO of Delta Galil, stated: “While we experienced challenges in our second quarter, they were partially offset by improvements in several business segments and regions, demonstrating the strength of our diversified business model. We have a strong balance sheet in place, and through our blend of branded and private label products, an expanding global presence, and a range of market segments, we remain positioned for long-term profitable growth.”

“During the quarter, we saw significant improvements in Delta Israel, including a 14% increase in sales, as well as a strong performance by Schiesser, including a 10% increase in sales.

“We were very pleased with the early completion of the Eminence Group acquisition, as it adds a men’s premium French brand, while expanding our business in France and Italy, where we currently lack significant market share. The acquisition was financed using Euro bank loans at an attractive interest rate. We will consolidate Eminence Group results beginning in the third quarter.”

“Looking ahead, we expect the investments we made in our manufacturing facilities to start having positive impacts on our bottom line towards the second half of 2019. We are also excited about designer/influencer collections in Delta Galil Premium Brands, possible initiatives with online retailers, and the ability to introduce core Delta products through the Eminence distribution channels. With a strong balance sheet and cash position, we have the necessary financial resources to continue to invest, innovate and grow – both organically and through acquisitions.”

EBITDA, Cash Flow, Net Debt, Equity and Dividend

EBITDA was $22.9 million or 6.8% of sales in the second quarter of 2018, compared to $25.5 million, or 7.5% of sales in the same quarter last year. For the first six months of 2018, EBITDA was $44.3 million, compared to $44.6 million in the same period of 2017.

Operating cash flow for the trailing 12 months ended June 30, 2018 was $51.9 million, compared to $76.4 million for the trailing 12 months ended June 30, 2017.

Net financial debt as of June 30, 2018 was $178.7 million, compared to $169.7 million as of June 30, 2017 and $125.6 million as of December 31, 2017.

Equity on June 30, 2018 was $450.1 million, up from $417.8 million a year earlier.

Delta Galil declared a dividend of $3.5 million, or $0.139 per share, to be distributed on September 4, 2018. The determining and "ex-dividend" date will be August 23, 2018.

2018 Financial Guidance

Delta Galil reaffirmed its 2018 financial guidance, excluding one-time items and the positive impact expected from the Eminence Group acquisition.

• Full-year 2018 sales are expected to range between $1,400 million-$1,440 million, representing an increase of 2%-5% from 2017 actual sales of $1,368.1 million.
• Full-year 2018 EBIT is expected to range between $91 million-$96 million, representing an increase of 4%-10% from 2017 actual EBIT of $87.4 million.
• Full-year 2018 EBITDA is expected to range between $119 million-$125 million, representing an increase of 3%-8% from 2017 actual EBITDA of $115.9 million.
• Full-year 2018 net income is expected to range between $54 million-$59 million, representing an increase of 7%-16% from 2017 actual net income of $50.7 million.
• Full-year 2018 diluted EPS is expected to range between $2.11-$2.30, representing an increase of 7%-16% from 2017 actual EPS, of $1.98.

About Delta Galil Industries

Delta Galil Industries is a global manufacturer and marketer of branded and private label apparel products for men, women and children. Since its inception in 1975, the Company has continually strived to create products that follow a body-before-fabric philosophy, placing equal emphasis on comfort, aesthetics and quality. Delta Galil develops innovative seamless apparel including bras, shapewear and socks; intimate apparel for women; extensive lines of underwear for men; babywear, activewear, sleepwear, and leisurewear. Delta Galil also designs, develops, markets and sells branded denim apparel under the brand 7 For All Mankind®, and ladies apparel under the brands Splendid® and Ella Moss®. For more information, visit www.deltagalil.com.

Safe Harbor Statement

Matters discussed in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words "anticipate," "believe," "estimate," "may," "intend," "expect" and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein, and while expected, there is no guarantee that we will attain the aforementioned anticipated developmental milestones. These forward-looking statements are based largely on the expectations of the Company and are subject to a number of risks and uncertainties. These include, but are not limited to, risks and uncertainties associated with: the impact of economic, competitive and other factors affecting the Company and its operations, markets, product, and distributor performance, the impact on the national and local economies resulting from terrorist actions, and U.S. actions subsequently; and other factors detailed in reports filed by the Company.

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Balance Sheets
As of June 30, 2018
	June 30		December 31
	2018	2017	2017
	(Unaudited)		(Audited)
	Thousands of Dollars
Assets
Current assets:
Cash and cash equivalents	104,753	99,138	137,470
Restricted Cash	1,180	1,577	1,430
Other accounts receivable:
Trade receivables	153,134	150,188	148,806
Taxes on income receivable	1,277	1,788	2,915
Others	27,192	18,689	20,632
Financial derivative	694	1,111	1,191
Inventory	295,680	261,393	269,877
Assets classified as held for sale	-	1,000	-
Total current assets	583,910	534,884	582,321
Non-current assets:
Investments in associated companies accounted using the equity method and long-term receivables	14,460	10,830	11,142
Investment property	3,552	3,605	3,718
Fixed assets, net of accumulated depreciation	165,721	154,771	160,018
Goodwill	70,101	70,101	70,101
Intangible assets, net of accumulated amortization	156,304	150,856	158,768
Deferred tax assets	13,755	16,334	11,654
Financial derivative	10,592	22,619	22,800
Total non-current assets	434,485	429,116	438,201
Total assets	1,018,395	964,000	1,020,522

DELTA GALIL INDUSTRIES LTD.
Concise Consolidated Balance Sheets
As of June 30, 2018
	June 30		December 31
	2018	2017	2017
	(Unaudited)		(Audited)
	Thousands of Dollars
Liabilities and Equity
Current liabilities:
Short-term bank loans	24,598	108	28
Current maturities of debentures	20,409	14,745	20,596
Financial derivative	2,879	1,332	1,432
Other accounts payable:
Trade payables	117,271	100,094	112,028
Taxes on income payable	8,569	5,892	6,373
Others	97,609	93,380	117,804
Total current liabilities	271,335	215,551	258,261
Non-current liabilities:
Severance pay liabilities less plan assets
Other non-current liabilities	4,151	3,507	4,057
Debentures	35,893	45,092	40,212
Reserve for deferred taxes	248,009	277,937	258,945
Financial derivative	8,951	4,160	7,724
Total non-current liabilities	297,004	330,696	310,938
Total liabilities	568,339	546,247	569,199
Equity:
Equity attributable to equity holders of the parent company:
Share capital	23,712	23,700	23,708
Share premium	130,792	130,750	130,791
Other capital reserves	(1,314)	1,849	7,834
Retained earning	312,759	277,530	304,788
Treasury shares	(16,677)	(17,222)	(16,914)
	449,272	416,607	450,207
Minority interests	784	1,146	1,116
Total equity	450,056	417,753	451,323
Total liabilities and equity	1,018,395	964,000	1,020,522

DELTA GALIL INDUSTRIES LTD.
Consolidated Statement of Comprehensive Income
For the 3-month and 6-month periods ending June 30, 2018
	Six months ended June 30		% Increase/(Decrease)	Three months ended June 30		% Increase/(Decrease)
	2018	2017		2018	2017
	(Unaudited)
	Thousands of Dollars
	Except for Earnings per Share Data
Sales	673,394	656,142	3%	338,907	340,461	(0%)
Cost of sales	423,776	418,098		216,200	216,360
Gross profit	249,618	238,044	5%	122,707	124,101	(1%)
% of sales	37.1%	36.3%		36.2%	36.5%
Selling and marketing expenses	189,928	173,949	9%	93,483	90,678	3%
% of sales	28.2%	26.5%		27.6%	26.6%
General and administrative expenses	31,458	33,138	(5%)	14,970	17,179	(13%)
% of sales	4.7%	5.1%		4.4%	5.0%
Other Expenses (income), net	(812)	576		(850)	(1,293)
Share in profits of associated company accounted for using the equity method	161	187		141	157
Operating income excluding non-recurring items	29,205	30,568	(4%)	15,245	17,694	(14%)
% of sales	4.3%	4.7%		4.5%	5.2%
Restructuring expenses (Income)	(5)	2,665		-	-
Deal cost	3,950	-		3,950	-
Operating income	25,260	27,903	(9%)	11,295	17,694	(36%)
% of sales	3.8%	4.3%		3.3%	5.2%
Finance expenses, net	9,597	9,115	5%	4,568	5,405	(15%)
Income before tax on income	15,663	18,788		6,727	12,289
Taxes on income	1,795	4,289		269	3,379
Net income for the period	13,868	14,499	(4%)	6,458	8,910	(28%)
Net income for the period excluding one-time items, net of tax	16,620	16,151	3%	9,105	8,910	2%
Attribution of net earnings for the period:
Attributed to company's shareholders	14,170	14,439		6,484	8,880
Attributed to non-controlling interests	(302)	60		(26)	30
	13,868	14,499		6,458	8,910
Net diluted earnings per share attributed to company's shareholders	0.55	0.57	(4%)	0.25	0.35	(27%)
Net diluted earnings per share, before non-recurring items net of tax attributable to Company's shareholders	0.65	0.63	4%	0.36	0.35	3%

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports
For the 3-month and 6-month periods ending June 30, 2018
	Six months ending		Three months ending
	June 30		June 30
	2018	2017	2018	2017
	(Unaudited)
	Thousands of Dollars
Cash flows from operating activities:
Net income for the period	13,868	14,499	6,458	8,910
Adjustments required to reflect cash flows deriving from operating activities	(25,647)	(1,753)	7,961	11,729
Interest paid in cash	(5,953)	(7,480)	(2,523)	(3,224)
Interest received in cash	310	231	213	122
Taxes on income paid in cash, net	(2,546)	(2,746)	(1,748)	(1,645)
Net cash generated (used in) from operating activities	(19,968)	2,751	10,361	15,892
Cash flows from investment activities:
Acquisition of fixed assets and intangible assets	(20,249)	(12,809)	(11,189)	(6,584)
Restricted cash release (deposit)	250	190	97	(35)
Earn-out payment for acquisition of an activity	(2,250)	(1,500)	-
Proceeds from selling of fixed asset	1,676	28,231	179	28,056
Others	(1,645)	(640)	(925)	(901)
Net cash generated from ( used in) Investing activities	(22,218)	13,472	(11,838)	20,536
Cash flows from financing activities:
Dividends paid to non-controlling interest holders in consolidated subsidiary
	(30)	(30)		(30)
Long term payables credit for fixed assets purchase	(1,643)	(2,034)	(1,154)	(480)
Debentures principle repayment	-	(6,413)	-	-
Financial Institute payment	(6,413)	-	-	-
Dividend paid	(6,999)	(6,300)	(3,538)	(2,761)
Short-term credit from banking corporations, net	24,570	(44,880)	24,586	84
Debentures issuance net of issuance expenses	-	57,152	-	-
Release (deposit) of bank deposit used as a security with respect of SWAP transaction	-	1,545	--	-
Proceeds from exercise of employees options	242	103	137	(98)
Net cash generated from ( used in) financing activities	9,727	(857)	20,031	(3,285)
Net increase (decrease) in cash and cash equivalents	(32,459)	15,366	18,554	33,143
Exchange rate differences and revaluation of cash and cash equivalents, net	(258)	1,825	(983)	1,366
Balance of cash and cash equivalents at the beginning of the period	137,470	81,947	87,182	64,629
Balance of cash and cash equivalents at the end of the Period	104,753	99,138	104,753	99,138

DELTA GALIL INDUSTRIES LTD.
Consolidated Cash Flow Reports
For the 3-month and 6-month periods ending June 30, 2018
	Six months ending		Three months ending
	June 30		June 30
	2018	2017	2018	2017
	(Unaudited)
	Thousands of Dollars
Adjustments required to reflect cash flows
from operating activities:
Revenues and expenses not involving cash flow:
Depreciation	12,685	11,409	6,388	5,983
Amortization	2,395	2,600	1,259	1,812
Cash erosion, net	(40)	(406)	(23)	(232)
Interest paid in cash	5,953	7,480	2,523	3,224
Interest received in cash	(310)	(231)	(213)	(122)
Taxes on income paid in cash, net	2,546	2,746	1,748	1,645
Deferred taxes on income, net	(631)	(2,455)	(929)	(668)
Severance pay liability, net	127	190	51	86
Restructuring expenses, net	(442)	2,665	-	-
Capital loss (gain) from sale of fixed assets and asset held for sale	(66)	(3,142)	(77)	(3,184)
Change to the benefit component of options granted to employees	800	1,174	446	626
Share in profits of associated company accounted for using the equity method	(161)	(187)	(141)	(157)
Others	254	233	(898)	(159)
	23,110	22,076	10,134	8,854
Changes to operating assets and liabilities:
Decrease (increase) in trade receivables	(7,837)	6,264	(4,212)	(17,305)
Decrease in other receivable and balances	(5,242)	494	(2,547)	4,043
Increase (decrease) in trade payables	6,029	(4,653)	17,528	17,542
Increase (decrease) in other payables	(9,459)	(3,647)	2,183	7,834
Decrease (increase) in inventory	(32,248)	(22,287)	(15,125)	(9,239)
	(48,757)	(23,289)	(2,173)	2,875
	(25,647)	(1,753)	7,961	11,729